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Top 10 Things to Know About Doing Business in India

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By Dezan Shira & Associates, Delhi office

  1. What are my options for investment? Foreign investment into India can come in a variety of legal entities. The choice depends on the kind of work you plan to do in the country. And the options are a liaison office, branch office or project office, each with its own set of criteria. For a foreign enterprise to engage in activities not listed within the limits of liaison, branch and project offices, wholly owned subsidiaries or joint venture companies can be established.
  2. How do I establish a company? Establishing a company in India can be a lengthy administrative process that requires communication with many different authorities. Seeking professional help will ensure that you get it right the first time and do not have to make costly changes later. Private limited companies are the most common company form used by foreign investors and may be in the form of joint venture collaborations with an Indian partner and/or public issues, or wholly owned subsidiaries having 100 percent foreign ownership. After establishing but before commencing business, all companies incorporated in India, whether locally or foreign-owned, must apply for a Permanent Account Number for taxation purposes.
  3. What are the key positions in an Indian company? Incorporating a private limited company requires a minimum of two directors, and between two and 50 shareholders, the highest authority of the company. The director or board of directors sets the agenda of the company’s operations according to shareholder decisions. As part of annual compliance requirements, companies must appoint an auditor to undertake a full audit of company accounts prior to the Annual General Meeting (AGM). For companies with paid-up capital of more than INR1 million (about $18,400), a company secretary must be appointed to sign an annual compliance certificate; for those with paid-up capital of more than INR50 million (about $920,000), a full-time company secretary must be appointed to act as a compliance officer.
  4. What kind of intellectual property rights considerations should be taken into account? An important issue is registration of your trademark. Registration involves several filing procedures, takes about 12 months and can be carried out by licensed Indian trademark lawyers at Trademark Registry Offices in Ahmadabad, Chennai, Kolkata, Mumbai or New Delhi.
  5. What are India’s major taxes? As of September 2012, the main taxes impacting foreign investors are: corporate income tax, 30 to 40 percent; standard tax on dividends (overseas parent company), 15 percent; and value-added tax, 12.5 percent.
  6. How is accounting and bookkeeping done? Accounting is done according to the Accounting Standards issued by the Institute of Chartered Accountants of India and approved by the Parliament of India. There are more than 30 accounting standards, each governing different aspects of accounting statements. The RBI regulates the country’s foreign exchange markets and prescribes exchange control norms, and the Indian rupee is fully convertible on the current account. However, on the capital account, the Indian rupee is only partially convertible.
  7. What are the annual compliance requirements? These differ for entities depending on whether they are foreign representative offices or companies. Incorporated companies are required to undertake an annual audit of accounts, which must be sent to shareholders well before the Annual General Meeting (AGM). Company accounts must be submitted to the office of the concerned Registrar of Companies annually, following an AGM, which must be held once every calendar year before Sept. 30. In addition, companies with paid-up capital of between INR1 million and INR20 million are required to file an Annual Compliance Certificate.
  8. How is transfer pricing conducted? Transfer pricing concerns the prices charged between associated enterprises (those linked through management, control or capital) established in different tax jurisdictions for their intercompany transactions. For tax and auditing purposes, international transactions between associated enterprises have to be assessed on the basis of the “arm’s length principle.” Taxpayers involved in internationally related party transactions are also required to maintain a series of more detailed documents showing the ownership structure and property/service involved. Transfer pricing documents need to be submitted by Oct. 31 following the close of the relevant year.
  9. What visas are needed for my foreign staff? For business activities, there are business visas (limited to six months) and employment visas. Foreigners intending to stay longer than 180 days are required to register with the local Foreigners’ Regional Registration Office within 14 days of arrival.
  10. What should I look for when signing labor contracts? Indian labor laws provide a minimum of guarantees and benefits to all employees, and these laws supersede the provisions of labor contracts. Pay special attention to the Industrial Disputes Act, which provides protections for employees; the Shops and Establishments Act, which governs hours of work, payment of wages, leave, holidays, terms of service and other conditions; and wage and remuneration acts that regulate payment of wages, bonuses and equalize pay for men and women.